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Conveyancing, Mortgages And Property Insurance In Hong Kong

Posted: Aug 14 2014Last Updated: Mar 18 2016

1.  Conveyancing Procedures

1.1 Title

In order to establish title to a property, it is necessary to check all title documents affecting it.  There are many issues of varying materiality that are a common cause of questions and delays and which can affect a property’s liquidity. Title insurance is available in Hong Kong and provides protection against many defects in title commonly found.

1.2 Buying Procedure

A purchase normally involves the following stages:

· Negotiating the principal terms either directly or through an estate agent.

·  Signing a binding provisional agreement for sale and paying a deposit of 3-5% of the price.  If the property is subject to a mortgage, the deposit is paid to the seller’s solicitors as stakeholders; otherwise it is usually released to the seller although there is some risk in this.  Provisional agreements are usually binding but not specifically enforceable, so that either party can withdraw from the transaction but with the loss of an amount equal to the provisional deposit.

·  Signing a formal agreement for sale within 14 days after the provisional agreement and paying a further deposit to make up the total deposit to 10%.  Again, payment will be made either to the seller or his solicitors as stakeholders depending on whether the property is subject to a mortgage. At this stage, the agreement will be specifically enforceable.

·  Investigating the title by the buyer’s lawyer after exchanging the formal agreement for sale and raising and replying to questions on the title (requisitions).

·  Completion, which is usually effected by a solicitor’s undertaking rather than in a formal face to face completion meeting.

The buyer’s lawyer usually acts for the buyer’s mortgagee as well.

1.3  Payments

The buyer usually pays the following:

·  Its own legal costs for dealing with the purchase

·  Stamp duty

·  Estate agent’s commission (typically 1% of the purchase price from each of the buyer and seller)

·  Land registration and search fees

·  Company registration and search fees

·  Insolvency search fees

1.4 Mortgages

Subject to production of satisfactory proof of income, mortgages are generally available.

Mortgage financing is usually secured by a first legal charge over the property. In more complex loan, there may also be:

·  Assignment of Rental

·  Assignment of Insurances

·  Assignment of Sale Proceeds

·  Charge over Shares (if a company owns the property)

In order to protect the interests of the lender, the security documents will need to be registered at the Land Registry and, for a company owner charging its property or shares, at the Companies Registry.

1.5 Insurance

Typically, as from the date of signing of the provisional agreement, the risk in the property transfers to the buyer, although the agreement can provide otherwise.  It is important for the buyer to have arranged adequate insurance cover for the property from the date it is signed.  If the preliminary agreement is not specifically enforceable, the risk is limited to loss of the initial deposit prior to signing the formal agreement.  In this case it is usual only to insure on the signing of the formal agreement.

Further information

For further information on real estate system in Hong Kong or on any of the issues raised in this paper, please contact http://www.cordells.com.hk/.

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